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CIRCULAR No

CIRCULAR No. 22/2002/TT-BTC OF MARCH 11, 2002 GUIDING THE HANDLING OF FINANCIAL MATTERS AND ACCOUNTING BY VIETNAMESE STATE ENTERPRISES WHICH HAVE CONTRIBUTED CAPITAL FOR SETTING UP JOINT-VENTURE ENTERPRISES UNDER THE LAW ON FOREIGN INVESTMENT IN VIETNAM WHEN THESE JOINT-VENTURE ENTERPRISES TERMINATE OPERATION

Pursuant to the November 12, 1996 Law on Foreign Investment in Vietnam and the June 9, 2002 Law Amending and Supplementing a Number of Articles of the Law on Foreign Investment in Vietnam;

Pursuant to the Government�s Decree No. 24/2000/ND-CP of July 31, 2000 detailing the implementation of the Law on Foreign Investment in Vietnam;

Pursuant to the Government�s Decree No. 04/2000/ND-CP of February 11, 2000 detailing the implementation of the Law Amending and Supplementing a Number of Articles of the Land Law;

The Ministry of Finance hereby guides the handling of financial matters and accounting by Vietnamese State enterprises which have contributed capital for setting up joint-venture enterprises under the Law on Foreign Investment in Vietnam when these joint-venture enterprises terminate operation as follows:

I. GENERAL PROVISIONS

1. Subjects and scope of application:

This Circular prescribes the handling of financial matters and accounting related to:

1.1. The portions of assets and capital of State enterprises, which are divided from joint ventures when the latter terminate operation in the following cases:

- At the expiry of the term defined in the investment license;

- Under conditions for operation termination specified in the joint-venture�s contract or charter;

- By decisions of the agencies in charge of State management over foreign investment, due to serious violations of law or stipulations of the investment license;

- Being declared bankrupt.

1.2. State enterprises which transfer or re-purchase the capital portions contributed to joint ventures.

2. When joint-venture enterprises terminate operation, the joint-venture capital contributors shall have to set up liquidation boards to carry out the liquidation, implement the asset and capital division and disposal plans according to the joint-venture charters and contracts, ensuring fairness and law observance (except for cases where joint ventures are declared bankrupt, the settlement procedures shall comply with the Enterprise Bankruptcy Law).

3. Enterprises being Vietnamese partners shall, on the basis of the asset and capital division results of the joint-venture enterprise liquidation boards (or the court decisions), have to receive the assets divided from the joint ventures, financially handle and account them according to the provisions in Parts II and III of this Circular.

Enterprises being Vietnamese partners include:

- Corporations, independent cost-accounting practicing enterprises belonging to corporations, independent enterprises of the ministries, the People�s Committees of the provinces and centrally-run cities, which previously made joint-venture capital contribution with an enterprise component or part of their assets and capital;

- Where State enterprises previously contributed the whole of their values for setting up joint ventures, thus their legal entities no longer existed:

+ If the enterprises are members of State corporations, the representatives of the Vietnamese partners shall be State corporations.

+ If they are independent enterprises of the branch-managing ministries or the People�s Committees of the provinces and centrally-run cities, the latter shall have to appoint enterprises to act as representatives of the Vietnamese partners in receiving assets and capital divided from the joint ventures.

4. General principles for handling financial matters and accounting when joint-venture enterprises terminate operation include:

Where the asset and capital value received from the liquidation of the joint-venture enterprises is bigger than the value of the capital contributed thereto, the enterprises being Vietnamese partners may account it as an increase in their business capital source. Where it is smaller than the value of the capital contributed to joint ventures, the enterprises may offset the deficit with the financial reserve funds; if the financial reserve funds are not enough, the enterprises may account the deficit into their financial operation expenses.

Where the enterprises suffer from prolonged losses, thus financially incapable of offsetting the deficit themselves, they shall report such to the Ministry of Finance (for central enterprises) or the People�s Committees of the provinces and centrally-run cities (for local enterprises) for consideration and permission to reduce their business capital.

II. SPECIFIC PROVISIONS

1. Where enterprises being Vietnamese partners receive back or get the value of the right to use land, water surface or sea surface divided from joint ventures for the time the joint ventures have not used it up (hereinafter called the remaining value of the land use right):

1.1. If the enterprises being Vietnamese partners previously contributed to the joint-venture capital with the land use levy or already accepted the transfer of the lawful land use right but such amounts do not derive from the State budget, when the joint ventures terminate operation, the enterprises may continue to use the land for the remaining duration in which the State has allocated the land without having to pay remittances for the use of the State budget capital, but shall have to pay the land use tax (land tax) to the State according to current regulations.

1.2. If the enterprises being Vietnamese partners previously contributed to the joint-venture capital with the land use levy or accepted the transfer of the lawful land use right and such amounts derive from the State budget, or the land has been leased by the Vietnamese State to these enterprises which can contribute the value of the land use right (the land rent) to joint ventures with foreign countries and the land rents have been converted into the State capital invested in the enterprises, when the joint ventures terminate operation, the enterprises may continue using the land for the remaining land lease or allocation duration and shall be responsible for preserving the State capital amount corresponding to the land rents already assigned by the State for contribution to the joint ventures, pay remittances for the use of the State budget capital, which are calculated from the time the land rents are used as joint-venture capital contribution, according to current regulations.

1.3. Where the joint ventures are dissolved or go bankrupt and the enterprises being Vietnamese partners get the residual value of the right to use the land which is not that already contributed to joint ventures by the enterprises, the residual value of the land use right shall be regarded as a divided asset. The enterprises may continue using the land for the remaining land lease or allocation duration. Upon the expiry of the land use duration, the enterprises shall abide by the current provisions of the land legislation.

If the divided residual value of the land use right as prescribed at Point 1 of Part II above sees some increase (or decrease) as compared with the contributed joint-venture capital, the enterprises shall account the difference according to the provisions at Point 4, Part I of this Circular.

2. For other divided assets being houses, machinery, equipment, cash and receivable debts or losses and payable debts, the enterprises shall base themselves on the asset division results of the joint-venture enterprise liquidation boards (or the court decisions) to account them as prescribed at Point 4, Part I of this Circular.

3. For payable interests on loans borrowed for joint-venture capital contribution, which have not yet been accounted by the enterprises being Vietnamese partners, they shall be accounted into financial operation expenses.

4. Where enterprises being Vietnamese partners re-purchase the capital portions of the foreign partners, they shall account them as asset increase in the corresponding capital source according to current regulations on asset purchase.

5. Where enterprises being Vietnamese partners are permitted to transfer their capital contributed to joint-ventures to the foreign partners or the third partners (regardless of whether the joint ventures remain operative or have terminated operation):

5.1. If the whole capital amounts contributed to joint ventures are transferred (including the land use right), the enterprises shall account them like liquidating a financial investment; the proceeds from the transfer shall be accounted into financial revenues; the value of the contributed joint-venture capital and expenses incurred in the transfer shall be accounted into financial operation expenses. Where profits arise, the enterprise income tax must be paid thereon according to current regulations.

5.2. If the enterprises transfer only part of their capital contributed to the joint ventures, or do not transfer but lease or sub-lease the value of the land use right to the foreign partners or the third parties, they shall account the proceeds from such transfer as prescribed at Point 5.1 above. The annual proceeds from the land lease shall be accounted into financial revenues of the enterprises.

Where losses incur, the difference between the value of the contributed joint-venture capital and the proceeds from the capital transfer shall be accounted by the enterprises according to the provisions at Point 4, Part I of this Circular.

6. Where the land use right value and assets, when contributed to joint-venture capital, are valued higher than their value reflected on the accounting books and now the joint ventures terminate operation, after the enterprises have received the divided assets and accounted them as prescribed above, if the value of the received assets is higher than the current prices, the enterprises shall determine the price differences and report them to the Ministry of Finance (for central State enterprises) or the People�s Committees of the provinces and centrally-run cities (for local State enterprises) for consideration and appropriate adjustment of the value of such assets and capital.

III. REGULATIONS ON ACCOUNTING OF SOME MAJOR OPERATIONS

1. When their joint ventures terminate operation, the enterprises being Vietnamese partners shall, on the basis of the value of the received assets (the land use right, fixed assets, tools, instruments, materials and raw materials, finished products, receivable debts, cash�), which have been decided by the joint-venture liquidation boards (or by the court), and concurrently determining the difference (increase or decrease) as compared with the contributed joint-venture capital, make entries as follows:

1.1. Where the value of the received assets is lower than the contributed joint-venture capital (which is inscribed in accounting books and has been accepted by the joint ventures), the difference shall be, first of all, offset with the financial reserve fund; if the financial reserve fund is not enough, the deficit shall be accounted into financial expenses, and the enterprises shall make entries as follows:

Debit Accounts 111, 112 - (received in cash)

Debit Account 138 - (receivable debts received)

Debit Accounts 152, 155 and 156 (materials and raw materials, goods received)

Debit Account 211 - Tangible fixed assets (residual value)

Debit Account 213 - Intangible fixed assets (residual value of the land use right, other intangible assets received)

Debit Account 415 - The financial reserve fund (the decreasing difference)

Debit Account 811 - Financial operation expenses (the residual decreasing difference)

Credit Account 222 - Contributed joint-venture capital (contributed capital amount).

1.2. Where the value of the received assets is higher than the contributed joint-venture capital (which is inscribed in accounting books and has been accepted by joint ventures), the difference shall be inscribed as an increase in the business capital source, and the enterprises shall make entries as follows:

Debit Accounts 111, 112 - (received in cash)

Debit Account 138 - Other receivable debts (receivable debts received)

Debit Accounts 152, 155 and 156 (materials and raw materials, goods received)

Debit Account 211 - Tangible fixed assets (residual value)

Debit Account 213 - Intangible fixed assets (residual value of the land use right, other intangible assets received)

Credit Account 222 - Contributed joint-venture capital (contributed capital amount)

Credit Account 411 - Business capital source (the increasing difference).

2. Cases of transfer of the contributed joint venture capital:

2.1. Where the transfer price is higher than the value of the contributed joint-venture capital, entries shall be made as follows:

Debit Accounts 111, 112 - (actually received cash amounts)

Credit Account 222 - Contributed joint venture capital (capital amounts already contributed)

Credit Account 711 - Financial operation revenues (the increasing difference).

2.2. Where the transfer price is lower than the value of the contributed joint-venture capital, the enterprises shall make entries as follows:

Debit Accounts 111, 112 - (actually received cash amounts)

Debit Account 811 - Financial operation expenses (the decreasing difference)

Credit Account 222 - Contributed joint venture capital (capital amounts already contributed).

2.3. For the arising transfer expenses (if any), the enterprises shall make entries as follows:

Debit Account 811 - Financial operation expenses

Credit Account 111, 112.

2.4. Upon settlement of incurred transfer expenses and transfer revenues (if any), in order to determine the capital transfer revenues, the enterprises shall make entries as follows:

+ Settlement of the expenses for transfer of contributed joint-venture capital:

Debit Account 911 - Determination of business results

Credit Account 811 - Financial operation expenses.

+ Settlement of the revenues from transfer of contributed joint-venture capital:

Debit Account 711 - Financial operation revenues

Credit Account 911 - Determination of business results.

3. Handling of other matters related to the process of receiving back contributed joint-venture capital

3.1. If the enterprises have borrowed capital for contributing to joint-venture capital but have not yet repaid the principal or interests thereon, they must determine the payable interests according to the borrowing commitments and include them in the financial expenses of the business cycle; and make entries as follows:

Debit Account 811 - Financial operation expenses

Credit Account 335 - Payable expenses

3.2. Where the enterprises meet with difficulties and are therefore permitted by the State to reduce their capital, after receiving the competent authorities� decisions permitting them to reduce their business capital, the enterprises shall make entries as follows:

Debit Account 411 - Business capital source (specified by capital source)

Credit Account 222- Contributed joint-venture capital

or

Debit Account 411 - Business capital source (specified by capital source)

Credit Accounts 211, 213 - (the difference between the value of assets evaluated when contributed to joint-venture capital and their value recorded in accounting books)

IV. IMPLEMENTATION PROVISIONS

This Circular shall also apply to business cooperation contracts which have created assets commonly owned by the involved parties when they terminate operation.

This Circular takes effect from the date of its signing. If meeting with any problems, the enterprises should promptly report them to the Ministry of Finance for study and settlement.

For the Minister of Finance

Vice Minister
TRAN VAN TA